October 20, 2021

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How Fannie And Freddie Help Investors Make Mobile Home Parks Less Affordable : Planet Money : NPR

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SYLVIE DOUGLIS, BYLINE: This is PLANET MONEY from NPR.

(SOUNDBITE OF COIN SPINNING)

MARY CHILDS, HOST:

Mary Hunt (ph) lives in a mobile home park in Swartz Creek, Mich. It’s called South Valley Estates. There are something like 120 mobile or manufactured homes here. Some look like suburban houses. Others are more like trailers up on foundations. The lawns are mowed. There are little gardens.

MARY HUNT: I don’t think you stepped on it, but that’s my pumpkin.

CHRIS ARNOLD, HOST:

Mary loves animals.

HUNT: Sassy (ph).

ARNOLD: There’s Sassy, the little aging hound dog. And she’s got, like, five cats. She tends to take cats in when they need a home.

HUNT: Claire (ph) – hold on, Clairebear (ph). I’m coming, baby.

CHILDS: She’s lived here a long time. She took care of her parents in this house.

HUNT: It’s a double-wide, so there is a lot of room. I’ve lived here almost 40 – 35 years.

ARNOLD: Mary’s 51. She’s a job driving elderly people to doctors’ appointments. She makes $10 an hour. She also does Instacart deliveries. Up until about five years ago, she was making ends meet, and living here was a big part of that. Mobile or manufactured homes provide a lot of affordable housing. There are nearly 3 million of them in mobile home parks across the country, and they can cost less than half of what other homes go for.

CHILDS: But the thing about mobile home parks is that even if you own your house outright, which Mary does, you still have to pay rent on the little plot of land that your house sits on. It’s called lot rent. For Mary, four years ago, it was less than $350 a month. And whenever she had trouble paying that on time, she could work it out. The couple that managed the park lived right here.

HUNT: Stan (ph) and Nancy (ph) were the ones before. I would call up and say, hey, look; I’ve got half the rent, I’ll bring the rest, you know, next week or whatever. OK, that’s fine, but you realize you’re going to have a late fee. Yeah, I understand that. I get that. OK. I take it down – no problem.

CHILDS: But then a few years ago, Stan and Nancy retired. The local landowner sold the park to a much bigger company called Havenpark Communities. It’s a real estate investment company that has been buying up mobile home parks across a bunch of different states.

ARNOLD: Pretty soon, Havenpark started raising her lot rent. It’s gone up from less than $350 to over 400. She used to pay $10 a month to have her dog. Havenpark raised that to $15. And she says they started tacking on other fees, too – fees she never had to pay before.

HUNT: Water’s about 35, sewers about 50 – something like that.

CHILDS: Soon after Havenpark took over, Mary didn’t have her full rent payment, so she says she did what she’d always done. She went to the park manager.

HUNT: I went in and said, OK, well, you know, I’ve got this amount right now, and I’ll have – oh, we can’t do that. You have to have the full thing. We can’t take a partial payment.

CHILDS: And there really wasn’t that much Mary could do about it. It cost between 5,000 and $10,000 to move a mobile home. Older ones often can’t be moved at all. So any fees they wanted to charge, she kind of had to go along with them.

ARNOLD: Did it ever really occur to you as a potential problem that – OK, you own the house right here – I mean, you know…

HUNT: Right.

ARNOLD: …This wall is yours, but, you know, the ground under our feet is not? Like…

HUNT: No, it never really was a big deal to me, you know?

CHILDS: It would turn out to be a big deal. Earlier this year, Mary got sick with COVID and fell behind on the rent, and the company filed an eviction case against her.

ARNOLD: Now, Mary had applied for federal money that’s supposed to help pay back rent so people don’t get evicted. But all over the country right now, that’s just taking a long time to reach the people who need it. And when we talked to Mary at the end of July, she was running out of options. A federal moratorium on evictions was about to expire, and the company would get the legal right to evict her in just a matter of days.

HUNT: How do I choose? If I have to go somewhere, how do I choose which cats to keep? What’s going to happen is I’m going to go with what I have on my back pretty much, and everything will go to the road, and there won’t be anything I can do about it. I could be out next week without a place to live.

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CHILDS: Hello, and welcome to PLANET MONEY. I’m Mary Childs.

ARNOLD: And I’m Chris Arnold. Today on the show, what happens when big investors and private equity firms spend billions of dollars buying up mobile home parks and make them less affordable for the people who live there

CHILDS: And how the government’s helping them do it with super low-cost loans that were meant to support affordable housing.

(SOUNDBITE OF WILLIAM DAVID FEATHERBY SONG, “DO THINGS RIGHT”)

CHILDS: Mary’s story is happening all across the country. A lot of the mom and pops who have been running mobile home parks for decades, they’re retiring. They’re looking to sell. And big investors are swooping in with billions of dollars to buy these up because they think the parks could be more profitable.

ARNOLD: We reached out to Havenpark. They wouldn’t do an interview. But we still wanted to understand more about why so many investors have gone into mobile home parks. In the past few years, hundreds of parks have been bought up by big corporations.

CHILDS: So we asked some of the big private equity players doing this – Blackstone, Apollo, Carlyle – and they also would not come on the show. But this guy would talk to us.

BRANDON TURNER: My name is Brandon Turner, and I’m the CEO of Open Door Capital. And we primarily invest in mobile home parks.

CHILDS: The big difference between companies like his and Havenpark and the Blackstones of the world is kind of a bunch of zeros and a lot of office space. But they all see the same opportunity here.

TURNER: I saw, well, where’s the world headed? We’re not building a lot of affordable housing. Yet we’re not solving – as an American society, we’re not solving the housing problem.

ARNOLD: And he sees owning mobile home parks as a really steady source of income – lots of demand, not enough supply, great business opportunity. It’s kind of the classic story. There’s a lot of mom and pop businesses not being run as efficiently as they could be – in this case, not raising rents or, he says, collecting rents as much as they could, being too loose with expenses. So he says there’s this inefficient industry, and big investors can come in and figure out ways to make it better and get more money out of it.

CHILDS: And he recognizes that some residents can get caught in a really vulnerable situation.

TURNER: The people who say that mobile home parks are predatory, 100% they’re right in a lot of cases. In fact, what the industry often does and has taught is that if you go into a park and these people own a home that is on the land but they can’t be moved, so then what the companies will do is they’ll come in and they’ll take the rent, and they’ll go from $250 all the way up to $500, and they can’t do anything. And this company then just makes a lot of money.

CHILDS: For those investors, that’s kind of a dream – inelastic demand. A lot of people own mobile homes they can’t move. They have to keep paying.

ARNOLD: In Havenpark’s case, they told us in a statement that starting last year, they do not raise lot rent more than $50 a year, and they charge the fair market rent for the area. Havenpark also said that sometimes if they didn’t buy a park, all the residents would get evicted because it would otherwise have gotten turned into a shopping mall or an office park.

CHILDS: And Brandon says, of course, he is not doing it the bad way. He’s not gouging people on rent. He says he’s making money by doing that thing we talked about – by buying up parks that maybe weren’t run so well and making them run better.

TURNER: I mean, I’m not saying we don’t raise rent, but where we make our money and where we choose to is by better management, by better collection.

CHILDS: Actually efficiently collecting the money from tenants, renegotiating contracts for a better deal on trash collection, fixing leaks to save on the water bill. And for him – he says this is the big one – he tries to find parks to buy that have a lot of vacant houses so he can bring in new tenants who will just happily pay rent month after month.

ARNOLD: And there’s another thing that the big investment firms do to get even more money out of these parks. I talked to several people in the industry, and here’s how they say this works. A company buys a mobile home park and starts jacking up the rents, which means the mobile home park is making more money, and that means it’s worth more money on paper. So the investor then refinances the mobile home park and takes out a big loan. Like when you refinance your house and get cash out of the deal, they do the same thing, and they pull, say, $3 million out. And then they go and buy another mobile home park and do it again and again and again. And this is one of the things that also makes mobile home parks a really good investment. You don’t need that much cash upfront to create this cascade of borrowed money to keep acquiring more and more parks.

CHILDS: And those loans – at least some of them have super cheap interest rates, thanks in large part to the federal government. Some of the loans are backed by Fannie Mae and Freddie Mac, the government-backed entities at the heart of the U.S. mortgage market. A big part of the reason Fannie and Freddie exist is to help more people be able to afford a house. And they do that by backing the loan, by guaranteeing it, which lowers the interest rate. They do this for individual homeowners, and they also do it for big corporations that build or buy apartment buildings and condos and mobile home parks.

ARNOLD: And Havenpark took advantage of this. They’ve gotten a lot of loans backed by Fannie Mae, backed by the federal government. But if Fannie Mae’s mission is to help people to be able to afford a home, all of this is not working out so well for Mary Hunt – right? – and for a lot of people in her park. There have been 15 eviction cases against eight different residents there in just the past year and a half.

CHILDS: And we called Havenpark to be like, wait; are you for real? You’re going to kick Mary out while she’s waiting on this federal money? And the next day, the day after we made that call, we got a voicemail from Mary.

HUNT: Hey, Chris. It’s Mary Hunt. I just wanted to give you a quick update. I just got a call from my attorney.

ARNOLD: Mary said that Havenpark had talked to somebody at the rental assistance program where she was waiting for that federal money to pay her back rent, and they said it looked like Mary would be approved.

HUNT: But I think I’m going to be OK. I just wanted to let you know. Bye.

ARNOLD: So it’s looking like Mary is going to get to stay in her home for now. We then asked Havenpark, though, OK, but what about all the other people in their parks in Mary’s position, who were waiting to get this federal rental assistance money? And Havenpark now says they will not evict renters who can prove that they are waiting to get that federal money.

CHILDS: But obviously, Mary’s bigger problem is not fixed. She still does not own the land. The rent has gone up. It might go up more. If she can’t scrape together all the rent one month, she might be right back facing eviction again.

ARNOLD: After the break, can there be another way? Can residents fight back against these big investment firms and beat them at their own game?

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ARNOLD: Now we’re going to go to another mobile home park. This one’s in Massachusetts.

Charlie Smith (ph) retired and moved to the Brookside Village mobile home park in Plainville, Mass. He’s 80 years old. And he’s got this really cute little mobile home that somehow to me looked like a surf shack that you’d see on Maui. It’s like, I just wanted to hang out there with him.

CHARLIE SMITH: I got a nice little yard with, you know, lots of trees and flowers and bushes. You can see how nice and private it is. See my hammock back there?

ARNOLD: Yeah. Oh, this is gorgeous.

SMITH: There she is.

ARNOLD: And one of the crown jewels, his Yamaha Royal Star motorcycle.

SMITH: It’s a 1,300. It’s a V4. And I have saddlebags to go on it.

CHILDS: A few years ago, Charlie almost wound up in the same situation as Mary. He and the other residents heard that their park was about to be sold to a big company.

SMITH: The owner had essentially already made a deal with that company.

ARNOLD: So how did you even find out that this was happening to your park, too?

SMITH: Oh, he sent us a letter. (Laughter) We got a letter saying that the park was being sold. And he stated the amount of money.

ARNOLD: Charles says the park was getting sold for about $4 million to this big company. And a lot of the other people in his park, they’re retirees on small fixed incomes. And they were concerned because they were seeing rents going up in other parks that were getting bought up around them.

SMITH: They weren’t just concerned. They were actually terrified, saying – they would turn to me and say, Charlie, if they force us out, where would I go? We couldn’t afford an apartment. We couldn’t afford, you know – like, what the hell would we do?

CHILDS: And then Charlie got a call from a housing nonprofit. They told him, listen; this isn’t a done deal. There’s this law in Massachusetts. It says, when a mobile home park goes up for sale, the people who live there get a chance to buy it first. It’s called the right of first refusal. Only a tiny handful of states have these laws.

ARNOLD: But if you live in these states, then a band of a couple dozen retirees can take on a billion-dollar corporation, or any other investor, and buy the park out. They can turn it into a resident-owned co-op.

This felt revolutionary to Charlie. And he says a bunch of park residents got together in, like, a church basement, and he floated the idea. Should they try to buy this park for themselves?

SMITH: And somebody’s saying, hey, we’re kind of like I guess they did back in the Revolution, where they met in a tavern and somebody says, you know, we should all get together.

CHILDS: So it was all really exciting. But as Charlie talked to this nonprofit and learned more, he realized this was going to be a long, difficult process. For one thing, they couldn’t get a break on the price. There was no discount for living there. They had to match whatever amount the investor was willing to pay. So that meant they needed to get a loan – a really big one.

ARNOLD: Right – to match that $4 million offer that the investor was going to pay. And, you know, even if Charlie sold his nice Yamaha, he’s not going to have that kind of money, right? So the only way to afford it was if everybody in the park agreed to pay more rent – $180 a month. And that was unheard of in this park.

SMITH: Every year, it had gone up $25 or something. And people kind of – they grumbled about it even then. But when you raise it 150 or 180, it’s like, whoa, I don’t want my rent raised.

CHILDS: And Charlie needed his neighbors to get behind the idea. The Massachusetts law says that 51% of the residents had to vote to form the co-op, rent increases and all.

ARNOLD: So they started going around, like, literally door to door and sitting down at kitchen tables with people and making the pitch. Charlie says at this point, investors who want to buy a park, they go around and make their own sales pitch to the residents, telling them, look; you don’t want to buy this park. You’re retired. You don’t know how to run a mobile home park. You don’t want the headaches and take all this on.

CHILDS: So it was super unclear to Charlie whether they would actually have enough votes.

SMITH: When we had the vote to find out how many people were in favor of us making the purchase, we got 100%.

ARNOLD: Everyone voted themselves a big rent increase. That’s how much they wanted to own this park themselves. And it worked. They did it. They bought the park.

SMITH: Hey. How you doing?

ARNOLD: At Brookside Village, it’s now been one year since the park converted to a co-op. Charlie and the other residents are celebrating what they call their own Independence Day. Andy Danforth was there, eating a cheeseburger off the grill. He was the nonprofit’s person on the ground at Brookside Village. And he also helped them get that really big loan that they needed. And he says it’s frustrating that they had to do that without any help from the federal government, from Fannie and Freddie.

ANDY DANFORTH: I’ve done over 50 conversions, over a quarter-billion dollars, and not a cent of it came from Fannie Mae or Freddie Mac.

ARNOLD: So what Andy’s saying is that when the residents of a mobile home park want to buy their own park, they almost never get a super cheap loan backed by Fannie and Freddie, generally because the co-ops don’t have the cash for a big enough down payment. But the investors, those big companies that are buying up parks like this, they absolutely do have the cash. So that’s why they’re getting their loans backed by Fannie and Freddie. In fact, they got more than $5 billion worth of those government-backed loans just last year.

CHILDS: And it doesn’t have to be this way. People like Andy say it’s within the government’s power to change this, to change the structures that are cutting out the co-ops. There are plenty of different approaches Fannie and Freddie could try to see if they work.

ARNOLD: And he says if residents of mobile home parks could get those loans backed, it would change the game. Residents could get easier access to loans at much lower interest rates, so they’d be more able to afford to buy up their own parks. A lot more parks could turn into co-ops.

DANFORTH: These folks – they’re probably paying another $100 a month for every home just in interest that they wouldn’t be paying Fannie Mae. So $100 a month over a year is – you know, would turn out to be hundreds of thousands of dollars to these folks.

ARNOLD: So that huge $180 a month rent increase the people at Brookside Village here had to swallow – that could’ve been a lot smaller if the loan was backed by Fannie and Freddie.

CHILDS: And again, one of the central missions of Fannie and Freddie is to help people afford homes. But they’ve ended up backing the corporate investors that are jacking up rent and not the actual people trying to afford their homes. And because the co-ops don’t have access to this magic rate-lowering tool, they have to charge more rent. So somehow, all of the options for mobile home residents are paying more rent or paying more rent.

ARNOLD: We reached out to Fannie and Freddie, and Freddie Mac told us in a statement basically that they have recently been requiring some more protections for tenants in mobile home parks.

SMITH: Now the plan is…

ARNOLD: But Charlie doesn’t think that his work is done here. He and I slipped away from the barbecue, and he took me on a tour of the park. Charlie’s kind of become like the unofficial mayor. And he was pointing out all the big plans for the future for this place, including space for more mobile homes.

SMITH: Because we’re going to have a home there and then a home and a home. Four more brand-new ones are going to be in this area here.

ARNOLD: Four more homes, where people will live on land that they own together and that no big investor can buy out from under them.

(SOUNDBITE OF EMANUEL KALLINS AND STEVE SKINNER’S “BACK THEN”)

CHILDS: Have you beaten private equity at its own game? Let us know – [email protected] We are on all the social media. We are @planetmoney. And we have a newsletter. It’s really good. You can find it at npr.org/planetmoneynewsletter. This week, the PLANET MONEY newsletter is “There’s A Way You Can Beat The Best Investors. You’ve Just Got To Know When To Sell.”

(SOUNDBITE OF EMANUEL KALLINS AND STEVE SKINNER’S “BACK THEN”)

ARNOLD: Today’s episode was produced by Dave Blanchard and mastered by Isaac Rodrigues (ph), edited by Sara Sarasohn. Special thanks to James Sneed, as well as Savannah Sicurella and to Robert Benincasa with NPR’s investigations team. Our supervising producer is Alex Goldmark. I’m Chris Arnold.

CHILDS: And I’m Mary Childs. This is NPR. Thanks for listening.

(SOUNDBITE OF EMANUEL KALLINS AND STEVE SKINNER’S “BACK THEN”)

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